OPER/084IBS Center for Management ResearchIKEA’s Cost Efficient Supply ChainThis case was written byA. Harish,under the direction ofVivek Gupta, IBS Center for Management Research. It wascompiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate eithereffective or ineffective handling of a management situation.2009, IBS Center for Management Research. All rights reserved.To order copies, call +91-8417-236667/68 or write to IBS Center for Management Research (ICMR), IFHE Campus, Donthanapally,Sankarapally Road, Hyderabad 501 504, Andhra Pradesh, India or email: [email protected]www.icmrindia.org

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IKEA’s Cost Efficient Supply Chain“Assembled furniture is expensive to transport and store because you end up paying for a lot ofair. By flat packing unassembled furniture and getting customers to pick their own products instore, Ikea dramatically reduced its transportation and warehousing costs and passed the savingsto their customers”1-Carter McNabb, Partner, GRA, November 2008.2INTRODUCTIONOn January 01, 2009,Modern Material Handlingannounced that IKEA Group(IKEA), world s3largest furniture retailer, had won the Modern s Productivity Achievement Awardfor the45Warehousing/Distribution segment for the year 2008-09.Founded in 1943, in Sweden, IKEA focused on offering a wide range of good quality, stylish,well-designed, and functional furniture at a low cost so that more people could afford it. IKEAkept cost reduction at the center of any decision making. It made efforts to improve its internalsupply chain processes like packaging, warehousing, and transportation which contributed to itscost cutting objective. Its most differentiating factor was its flat packaging system which hadsignificantly improved its operational efficacy.IKEA was ranked 35in the list of the top 100 brands byBusiness Weekfor the year 2008-09.t h6The company s brand value was estimated to be US$ 10.9 billion in 2008. For the financial year2008, IKEA registered sales of US$ 28.8 billion. According to industry experts, IKEA s supplychain management was the key factor for the success of the company. The company consideredfactors like carriers used for transportation and pallets used in warehouses to base its decisions likefurniture design and packaging. As a result, IKEA was managing its costs better than itscompetitors and was able to offer products at 30% lower costs.IKEA maintained a long-term relationship with its suppliers and assisted them in improving theirprocesses so that it would help in cutting costs further. The company did not offer free homedelivery as other furniture retailers did and expected its customers carry the products with them inJasmine Smith, “Achieving Supply Chain Efficiency,”Insid e Retailing,No vember 17, 2008.

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